Energy Tax Credits

By Anne Fonda

Energy tax credits are a specific type of federal tax credit that you may be able to claim on your taxes if you completed qualified energy-saving upgrades to your home. You may also have heard these credits referred to as the  ENERGY STAR tax credit. That’s because qualifying projects must meet ENERGY STAR requirements.

The Inflation Reduction Act (IRA) of 2022 offers tax credits of up to $3,200 each year until 2032 for qualifying energy-efficient home upgrades to your primary residence. The official name of the credit is The Energy Efficient Home Improvement Credit (25C). There is no lifetime limit. 

The full $3,200 is only applicable if you install a qualifying heat pump or heat pump water heater. The maximum per year for projects that don’t include heat pump technology is $1,200.

Qualifying projects that meet ENERGY STAR requirements and the maximum credit amounts available include:

Visit the ENERGY STAR link above to see the specific requirements for each project.

Here at American Standard, we’re especially interested in the HVAC tax credits you can claim to help pay for energy-efficient HVAC systems. They include credits for heat pumps, air conditioners, and furnaces.

If you replace an existing heat pump or traditional split system with a more efficient heat pump, you may be eligible for a tax credit that covers up to 30% of the cost, or $2,000, whichever is greater. This is a huge increase over the previous heat pump tax credit of only $300. ENERGY STAR lays out the specific requirements for heat pumps and mini-split ductless systems. Requirements may differ based on where you live (i.e. North or South). 

Claiming this credit would leave you with $1,200 more in credits that you could potentially claim for other projects listed above, as long as they meet the requirements.

Qualified central air conditioners and furnaces are each eligible for up to 30% of the cost, or $600 each, whichever is greater. That means if you choose to install a new qualified matched system, you could claim $1,200 in tax credits. AC units must meet certain SEER2 efficiency requirements while furnaces must meet certain AFUE efficiency requirements.

Local utility companies across the country are offering Inflation Reduction Act-related rebates. You can use the ENERGY STAR rebate finder to find rebates you might qualify for. Your local HVAC contractor will also be aware of any HVAC-related rebates.

In addition to the available IRA tax credits, the Residential Energy Credit, formally known as the Residential Clean Energy Credit program, has been extended through 2032. You can claim up to 30% of the cost of clean energy projects, including installation costs. There is no yearly or lifetime dollar limit except for fuel cells. These tax credits are available in full until 2032 and at a reduced rate in 2033 and 2034.

Qualified projects include:

Installing energy-efficient systems and green energy sources is not only good for the planet but also good for your wallet. 

Both tax credit programs apply to your main home. Vacation homes may not qualify for all credits and commercial buildings do not qualify at all. And if you use your home party for business, the percentage of the credits you can claim may be reduced.

These tax credits are non-refundable credits. That means while the credits can reduce your tax liability to $0 if there is a partial credit left over, you cannot receive a refund for the remainder. However, just because you received a tax refund last year, doesn't mean you didn't have any remaining tax liability. You may still be eligible for these tax credits.

You may want to consult a tax advisor for guidance. When you file your tax return, you will need to fill out Form 5695 in detail. Be sure to keep all of your receipts for material and labor.

Visit our Homeowner’s Guide to Energy Tax Credits and Rebates for more information, and see which of our heat pumps, furnaces, and air conditioners qualify for the HVAC tax credit.

A Content Writer with Trane Technologies, Anne Fonda researches topics and writes for Trane® and associated residential HVAC brands. She works in collaboration with Trane Technologies subject matter experts, offering easy-to-understand, informative content on complex topics. Her goal is to help consumers make informed decisions on the products and services they need. 

She has written for HVAC and other service provider websites for over 16 years. Before transitioning to web content writing, Anne had a 14-year stint as an award-winning journalist. She graduated cum laude from the University of Missouri-Columbia School of Journalism. When she’s not working, Anne enjoys playing word games, reading, gardening, spending time with family, and visiting gardens and museums.

Expert review by Josef Hejda, Electrification Commercialization Leader